SECURITIES AND EXCHANCE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
---------------------- -----------------------
Commission file number 0-28036
BROOKS FIBER PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
43-1656187
- --------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
425 Woods Mill Road South, Suite 300, St. Louis, Missouri 63017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-878-1616
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Shares of Voting Common Stock outstanding at July 2, 1996: 28,352,160 par value
$.01.
Exhibit Index is on page 29.
Page 1 of 31
<PAGE>
BROOKS FIBER PROPERTIES, INC. AND SUBSIDIARIES
PART I - Financial Information
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the Three
Months and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statement of Changes in Shareholders'
Equity for the Six Months Ended June 30, 1996 5
Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 26
Part II - Other Information
Item 6. Exhibit(s) and Reports on Form 8-K 27
Signatures
2
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Balance Sheets
<CAPTION>
June 30, 1996 December 31, 1995
--------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................................... $ 256,224,000 $ 59,913,000
Marketable securities ................................................................... 150,178,000 --
Accounts receivable, net ................................................................ 5,198,000 2,003,000
Other current assets .................................................................... 6,997,000 1,183,000
------------- -------------
Total current assets ....................................................... 418,597,000 63,099,000
NETWORKS AND EQUIPMENT, net .................................................................... 142,898,000 50,042,000
INVESTMENT IN MINORITY-OWNED SUBSIDIARY ........................................................ 5,000,000 --
OTHER ASSETS, net .............................................................................. 67,330,000 33,469,000
============= =============
$ 633,825,000 $ 146,610,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ................................................ 15,677,000 5,186,000
------------- -------------
Total current liabilities .................................................. 15,677,000 5,186,000
------------- -------------
LONG-TERM DEBT ................................................................................. 306,391,000 43,977,000
MINORITY INTERESTS ............................................................................. 11,222,000 3,992,000
COMMON STOCK, subject to redemption, $.01 par value,
2,016,000 and 0 shares issued and outstanding ........................................... 25,200,000 --
SHAREHOLDERS' EQUITY:
Preferred stock, 1,040,012 shares authorized:
Convertible preferred stock, Series A-1, $.01 par value;
489,600 shares authorized; 0 and 396,000 shares
issued and outstanding .......................................................... -- 39,600,000
Convertible preferred stock, Series A-2, $.01 par value;
439,927 shares authorized; 0 and 419,705 shares
issued and outstanding .......................................................... -- 65,596,000
Convertible preferred stock, Series B-1, $.01 par value;
12,000 shares authorized; 0 and 12,000 shares
issued and outstanding .......................................................... -- 1,200,000
Convertible preferred stock, Series B-2, $.01 par value;
4,545 shares authorized; 0 and 4,545 shares
issued and outstanding .......................................................... -- 711,000
Common stock, $.01 par value, 50,000,000 shares authorized,
26,336,160 and 1,162,800 shares issued and outstanding ................................ 263,000 12,000
Additional paid-in capital .............................................................. 305,500,000 --
Accumulated deficit ..................................................................... (30,428,000) (13,664,000)
------------- -------------
Total shareholders' equity ................................................. 275,335,000 93,455,000
------------- -------------
$ 633,825,000 $ 146,610,000
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
------------------------------ -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ................................................... $ 8,409,000 $ 3,489,000 $ 15,204,000 $ 6,512,000
Expenses:
Service costs ........................................ 3,592,000 1,751,000 6,459,000 3,417,000
Selling, general & administrative expenses ........... 8,725,000 2,535,000 15,346,000 4,791,000
Depreciation and amortization ........................ 3,166,000 1,008,000 5,594,000 1,753,000
------------ ------------ ------------ ------------
15,483,000 5,294,000 27,399,000 9,961,000
------------ ------------ ------------ ------------
Loss from operations .......................... (7,074,000) (1,805,000) (12,195,000) (3,449,000)
Other income (expense):
Interest income ...................................... 4,466,000 70,000 6,258,000 177,000
Interest expense ..................................... (7,762,000) (895,000) (11,597,000) (1,714,000)
------------ ------------ ------------ ------------
Loss before minority interests ................ (10,370,000) (2,630,000) (17,534,000) (4,986,000)
Minority interests in share of loss ........................ 615,000 176,000 1,138,000 318,000
------------ ------------ ------------ ------------
Net loss ...................................... $ (9,755,000) $ (2,454,000) $(16,396,000) $ (4,668,000)
============ ============ ============ ============
Pro forma loss per common and common
equivalent share ..................................... $ (0.40) $ (0.13) $ (0.75) $ (0.24)
============ ============ ============ ============
Pro forma weighted average number of
shares outstanding ................................... 24,323,081 19,523,584 21,923,333 19,523,584
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
BROOKS FIBER PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 1996
(Unaudited)
<CAPTION>
Convertible Preferred Stock
-------------------------------------------------------------------------
Series A-1 Series A-2
----------------------------------- -----------------------------------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 ............................ 396,000 $ 39,600,000 419,705 $ 65,596,000
Merger with BTC
- issuance of common stock ........................ -- -- -- --
- conversion of preferred stock to common stock ... (6,350) (635,000) (6,061) (1,000,000)
Issuance of Series A-2 Preferred Stock .............. -- -- 6,060 997,000
Warrants Exercised .................................. 9,940 109,000 -- --
Initial Public Offering
- issuance of common stock ........................ -- -- -- --
- common stock, subject to redemption, exchanged
for common stock ................................ -- -- -- --
- conversion of preferred stock to common stock.... (399,590) (39,074,000) (419,704) (65,593,000)
Stock Options Exercised ............................. -- -- -- --
Conversion of minority interest in subsidiary to
common stock ........................................ -- -- -- --
Net Loss ............................................ -- -- -- --
---------------- ---------------- ---------------- ----------------
Balance, June 30, 1996 .............................. -- $ -- -- $ --
================ ================ ================ ================
<CAPTION>
Convertible Preferred Stock
-------------------------------------------------------------------------
Series B-1 Series B-2
----------------------------------- -----------------------------------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 ............................ 12,000 $ 1,200,000 4,545 $ 711,000
Merger with BTC
- issuance of common stock ........................ -- -- -- --
- conversion of preferred stock
to common stock ................................. -- -- -- --
Issuance of Series A-2 Preferred Stock .............. -- -- -- --
Warrants Exercised .................................. -- -- -- --
Initial Public Offering
- issuance of common stock ........................ -- -- -- --
- common stock, subject to redemption,
exchanged for common stock ...................... -- -- -- --
- conversion of preferred stock
to common stock ................................. (12,000) (1,200,000) (4,545) (711,000)
Stock Options Exercised ............................. -- -- -- --
Conversion of minority interest in
subsidiary to common stock .......................... -- -- -- --
Net Loss ............................................ -- -- -- --
---------------- ---------------- ---------------- ----------------
Balance, June 30, 1996 .............................. -- $ -- -- $ --
================ ================ ================ ================
<PAGE>
<CAPTION>
Common Stock Additional Total
---------------------------- Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ......................... 1,162,800 $ 12,000 $ -- $(13,664,000) $ 93,455,000
Merger with BTC
- issuance of common stock ..................... 756,340 8,000 9,447,000 -- 9,455,000
- conversion of preferred stock
to common stock .............................. 248,220 2,000 1,633,000 -- --
Issuance of Series A-2 Preferred Stock ........... -- -- -- -- 997,000
Warrants Exercised ............................... -- -- -- -- 109,000
Initial Public Offering
- issuance of common stock ..................... 7,385,311 74,000 185,119,000 -- 185,193,000
- common stock, subject to redemption,
exchanged for common stock ................... 224,000 2,000 2,798,000 -- 2,800,000
- conversion of preferred stock
to common stock .............................. 16,527,920 165,000 106,413,000 -- --
Stock Options Exercised .......................... 22,660 -- 90,000 -- 90,000
Conversion of minority interest in
subsidiary to common stock ....................... 8,889 -- -- (368,000) (368,000)
Net Loss ......................................... -- -- -- (16,396,000) (16,396,000)
------------ ------------ ------------- ------------- -------------
Balance, June 30, 1996 ........................... 26,336,160 $ 263,000 $ 305,500,000 $(30,428,000) $275,335,000
============ ============ ============= ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
BROOKS FIBER PROPERTIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended June 30
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................................ $ (16,396,000) $ (4,668,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .............................................. 5,594,000 1,753,000
Non-cash interest expense .................................................. 11,484,000 1,674,000
Minority interests ......................................................... (1,138,000) (318,000)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable ................................................... (1,713,000) (421,000)
Other, net ............................................................ (4,894,000) 112,000
Accounts payable and accrued expenses ................................. (4,407,000) (175,000)
-------------- --------------
Net cash used in operating activities ............................ (11,470,000) (2,043,000)
-------------- --------------
Cash flows from investing activities:
Purchase of networks and equipment .............................................. (63,220,000) (8,396,000)
Purchase of marketable securities ............................................... (155,306,000) --
Maturity of marketable securities ............................................... 4,993,000 --
Additions to other assets ....................................................... (5,372,000) (1,618,000)
Acquisitions of businesses, net of cash acquired ................................ (3,715,000) (13,941,000)
-------------- --------------
Net cash used in investing activities ............................ (222,620,000) (23,955,000)
-------------- --------------
Cash flows from financing activities:
Issuance of common stock ........................................................ 185,284,000 --
Issuance of preferred stock and subscriptions
receivable payments, net ...................................................... 1,106,000 21,162,000
Proceeds from minority interests ................................................ 8,000,000 104,000
Proceeds from long-term debt, net ............................................... 239,281,000 3,303,000
Repayment of long-term debt and capital leases .................................. (3,270,000) --
-------------- --------------
Net cash provided by financing activities ........................ 430,401,000 24,569,000
-------------- --------------
Net increase (decrease) in cash .................................. 196,311,000 (1,429,000)
Cash, beginning of period ............................................................. 59,913,000 8,795,000
-------------- --------------
Cash, end of period ................................................................... $ 256,224,000 $ 7,366,000
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ........................................ $ 108,000 $ --
============== ==============
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
BROOKS FIBER PROPERTIES, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
---------------------
The consolidated balance sheet of Brooks Fiber Properties, Inc.
("BFP" or the "Company") at December 31, 1995 was obtained from the
Company's audited balance sheet as of that date. All other financial
statements contained herein are unaudited and, in the opinion of
management, contain all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation. Operating
results for the three months and six months ended June 30, 1996 are
not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. The Company's accounting policies
and certain other disclosures are set forth in the notes to the
Company's audited consolidated financial statements as of and for the
year ended December 31, 1995.
2. Cash and Cash Equivalents
-------------------------
For the purpose of reporting cash flows, cash and cash equivalents
consist primarily of cash on hand and highly liquid securities with
insignificant interest-rate risk and original maturities of three
months or less at date of acquisition.
3. Marketable Securities
---------------------
Marketable securities consist of treasury bills, commercial paper,
and repurchase agreements with original maturities beyond three
months but less than twelve months. Marketable securities are stated
at cost, adjusted for discount accretion and premium amortization.
The securities in the Company's portfolio are classified as "held to
maturity," as management has the intent and ability to hold those
securities to maturity.
4. Acquisitions
------------
Pursuant to an Agreement and Plan of Merger between Brooks
Telecommunications Corporation (BTC) and the Company, BTC was merged
into the Company on January 2, 1996, and the securities of the
7
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Company held by BTC were canceled. Following the merger, the former
holders of BTC's common stock, preferred stock, convertible notes,
options and warrants received shares of the Company's common stock,
options, and warrants. After the consideration of the shares of BFP
held by BTC at the time of acquisition, the Company issued 756,340
shares of common stock valued at $12.50 per share and certain options
and warrants (see Note 8). Intangible assets of approximately $6.1
million were recorded as a result of this acquisition.
On January 31, 1996, the Company acquired City Signal, Inc., a
provider of competitive access and local exchange services in
Michigan and Ohio, and certain assets of a related entity, from an
unrelated party. In connection with the acquisition, the Company
issued approximately 2.2 million shares of common stock and assumed
certain specified liabilities. Intangible assets of approximately
$13.1 million were recorded as a result of this acquisition. In
addition, the Company granted the seller the option to require the
Company to repurchase any or all shares at a price of $12.50 per
share on or before February 1, 1998. In conjunction with the
Company's initial public offering (see Note 7), the holder of such
shares sold 10% of the shares. Accordingly, approximately 2.0 million
shares remain subject to redemption.
The above acquisitions were accounted for using the purchase method
of accounting and, accordingly, the results of operations of the
acquired companies have been included in the Company's consolidated
financial statements since the effective dates of acquisition. The
aggregate purchase price for these acquisitions was allocated based
on fair values as follows:
Fair value of tangible assets acquired $ 36,968,631
Fair value of intangible assets acquired 19,212,314
Liabilities assumed (20,011,507)
-------------
Purchase price, net of cash acquired $ 36,169,438
=============
8
<PAGE>
In June 1996, the Company and MCI/Metro Access Transmission Services,
Inc. ("MCI/Metro") entered into an agreement pursuant to which
MCI/Metro has acquired a 15% interest in the Company's Sacramento,
California network for $4.5 million, and has invested an additional
$3.5 million in the Company's San Jose joint venture company. The
agreement gives MCI/Metro the option to exchange the agreed value of
its September 1995 investment in the San Jose network for shares of
the Company's common stock based on the September 1995 price of $8.25
per share, if exchanged prior to October 24, 1996, or based on a
price of $15.50 per share, if exchanged thereafter but on or prior to
April 24, 1997; and to exchange the agreed value of its June 1996
investments in both networks for shares of the Company's common stock
based on a price of $30.00 per share, if exchanged prior to October
24, 1996, or based on a price of $40.00 per share, if exchanged
thereafter but on or prior to April 24, 1997.
In June 1996, the Company formed a strategic alliance with World-Net
Access, Inc., (World-Net) through a $5 million investment in exchange
for a 20 percent fully-diluted interest in World-Net. The investment
in World-Net is classified as Investment in Minority-Owned Subsidiary
on the Company's consolidated balance sheet. World-Net is a
privately-held, development stage company founded to form a national
Internet Service Provider network.
5. Networks and Equipment, Net
---------------------------
Networks and equipment consist of the following:
June 30 December 31
1996 1995
------------- -------------
Telecommunications networks $ 67,509,000 $ 30,158,000
Electronic and related equipment 59,224,000 20,174,000
Office equipment and furniture 12,884,000 2,435,000
Land and buildings 4,527,000 --
Leasehold improvements 2,538,000 232,000
Transportation equipment 3,719,000 173,000
------------- -------------
150,401,000 53,172,000
Less accumulated depreciation 7,503,000 3,130,000
------------- -------------
$ 142,898,000 $ 50,042,000
============= =============
9
<PAGE>
As of June 30, 1996 and December 31, 1995, networks and equipment
include $20,085,000 and $4,469,000 respectively of networks in
progress that are not in service and, accordingly, have not been
depreciated.
6. Other Assets, Net
-----------------
Other assets consist of the following:
June 30 December 31
1996 1995
------------- -------------
Goodwill $48,366,000 $29,129,000
Debt issuance costs 12,036,000 1,559,000
Organization, development,
and pre-operating costs 6,663,000 2,341,000
Interest rate cap arrangements 1,511,000 1,511,000
Rights-of-way and other 1,972,000 581,000
----------- -----------
70,548,000 35,121,000
Less accumulated amortization 3,218,000 1,652,000
----------- -----------
$67,330,000 $33,469,000
=========== ===========
7. Shareholder's Equity:
---------------------
Effective January 2, 1996, the Company's Board of Directors
authorized a 20-for-1 split for each share of common stock and
adjusted all outstanding common stock options and warrants
accordingly. All share data presented within the consolidated
financial statements have been revised to reflect the 20-for-1 stock
split.
On May 2, 1996, the Company completed its initial public offering of
7,385,331 shares of Common Stock at a price of $27.00 per share, for
gross proceeds of approximately $199.4 million and proceeds net of
10
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underwriting discounts, advisory fees and expenses of approximately
$185.2 million.
8. Stock Options and Warrants
--------------------------
The Company's 1993 Stock Option Plan (the Plan) authorizes the
granting of options and stock appreciation rights covering up to
3,400,000 shares of common stock. The options generally vest over a
period of three years from the date of grant.
Stock option activity for the Plan for the six months ended June 30,
1996 is as follows:
Number Price per Share
--------- ---------------
Balance, December 31, 1995 1,651,660 $4.00 - $6.60
Granted 962,000 $12.50 - $33.75
Exercised 22,660 $4.00
Canceled 132,000 $ 6.00 - $12.50
---------
Balance, June 30, 1996 2,459,000 $ 4.00 - $33.75
========= ===============
Also, in connection with the Agreement and Plan of Merger between the
Company and BTC, the Company issued options and warrants to certain
of the shareholders and employees of BTC for the purchase of
1,134,840 shares of the Company's common stock at prices of $11.35 to
$31.04 per share. The warrants expire at various dates from March 31,
1997 to December 21, 1999. The options generally vest over a three
year period from the date of grant.
9. Long-Term Debt:
---------------
On February 26, 1996, the Company completed the issuance and sale of
$425.0 million aggregate principal amount of 10 7/8% Senior Discount
Notes due March 1, 2006, for which gross proceeds of approximately
$250.0 million were received. No cash payments of interest are
required prior to September 1, 2001. Commencing at such time, the
Company will be required to make semi-annual interest payments on the
Senior Discount Notes, totaling approximately $46.2 million annually.
11
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10. Pro Forma Loss Per Share:
-------------------------
Pro forma loss per share has been computed using the number of shares
of common stock and common stock equivalents outstanding. The
weighted average number of shares used in computing pro forma loss
per share was 24,323,081 and 21,923,333 for the three and six month
periods ended June 30, 1996, respectively, and 19,523,584 for the
three and six month periods ended June 30, 1995. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83,
shares issued and stock options and warrants granted at prices below
the initial public offering price of $27.00 per share during the
twelve-month period preceding the date of the Company's initial
filing of the Registration Statement related to such initial public
offering have been included in the calculation of common stock
equivalent shares, using the treasury stock method, as if they were
outstanding for all of 1995 and for the three months and six months
ended June 30, 1996.
11. Commitments and Contingencies:
------------------------------
During September 1995, GST Tucson Lightwave, Inc. (Lightwave) was
permitted to intervene in litigation originally filed by Brooks Fiber
Communications of Tucson, Inc. a wholly-owned subsidiary of BFP (BFC
Tucson). Lightwave filed a counterclaim against BFC Tucson, BFP, and
Tucson Electric Power Company (TEP) charging BFC Tucson, BFP, and TEP
with violations of antitrust laws, all of which stem from an
agreement between BFC Tucson and TEP that allowed BFC Tucson
exclusive rights, for one year, to utilize certain of TEP's
rights-of-way. The original causes of the action have been settled,
however, the counterclaim by Lightwave is currently still pending.
The Company believes the claim to be without merit and intends to
vigorously defend against this action. The Company believes that
resolution of the matter will not have a material adverse effect on
the financial condition or results of operations of the Company.
12
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12. Subsequent Event:
-----------------
Pursuant to an agreement dated as of June 24, 1996, the Company has
agreed, subject to regulatory approvals, to acquire the stock of ALD
Communications, Inc. ("ALD"), a switchless reseller of long distance
services, and Tenant Network Services, Inc. ("TNS"), a wholly-owned
subsidiary of ALD which acts as a shared tenant service provider of
telecommunications services, both of which provide their services
primarily to customers in the San Francisco, California area.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's condensed Consolidated Financial Statements and Notes thereto
included herewith, and with the Company's Management's Discussion and Analysis
of Financial Condition and Results of Operations and audited consolidated
financial statements and notes thereto as of and for the year ended December 31,
1995.
Overview
- --------
The Company is a leading full-service provider of competitive local
telecommunications services in selected markets in the United States. The
Company acquires and constructs its own state-of-the-art fiber optic networks
and facilities and leases network capacity from others to provide interexchange
carriers ("IXCs") and business, government and institutional end users with an
alternative to the local exchange carriers ("LECs") for a broad array of high
quality voice, data and other telecommunications services.
The Company's goal is to become the primary full-service provider of
competitive local telecommunications services to IXCs and business, government
and institutional end-users in selected cities by offering superior products
with excellent customer service at prices below those charged by the LECs. The
Company currently has systems in 26 cities, consisting of systems in operation
in 18 cities and under construction in 8 cities. The Company plans to expand its
network operations to have systems in operation or under construction in a total
of 30 cities by the end of 1996 and a total of 50 cities by the end of 1998. The
14
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Company has switches installed and in operation in its networks in Sacramento,
California and Hartford, Connecticut and, in connection with the Company's
recent acquisition of City Signal, Inc., obtained a fully-operational switch
serving Grand Rapids, Michigan. The Company has taken delivery of six additional
switches for its networks in Springfield, Massachusetts, Providence, Rhode
Island, Tucson, Arizona, and Fresno, Bakersfield, and San Jose in California.
Subject to regulatory approvals, the Company plans to have switching, frame
relay and asynchronous transfer mode ("ATM") based packet transport capabilities
in 25 of its operating networks by the end of 1996.
On January 31, 1996, the Company completed the acquisition of City
Signal, Inc., which included networks in operation or under construction in four
cities in Michigan and Ohio, including an installed switch in Grand Rapids,
Michigan. At the date of acquisition, the acquired networks had approximately
208 route miles of fiber, 30,456 in voice grade equivalent circuits ("VGEs"),
and 226 buildings connected. In addition, effective January 2, 1996, Brooks
Telecommunications Corporation ("BTC"), a founding stockholder of the Company
and the previous owner of GLA International ("GLA"), was merged into the
Company. GLA, a wholly-owned subsidiary of the Company, offers a full range of
consulting, management, engineering and information system solutions for
telecommunications companies. GLA's capabilities also serve as an internal
source for the telecommunications infrastructure support needed to facilitate
the Company's network growth and penetration of the competitive local exchange
company ("CLEC") business.
15
<PAGE>
The following table provides selected statistical data for the
Company as of the dates indicated:
As of June 30, Percentage
---------------------- ----------
1996 1995 Change
-------- -------- ----------
Cities in operation ................... 18 11 64%
Cities under construction ............. 8 9 (11%)
Buildings connected ................... 644 143 350%
Route miles ........................... 705 223 216%
Fiber miles ........................... 43,152 14,272 202%
Switches installed .................... 9 -- NM
CLEC lines in service ................. 9,226 -- NM
VGE circuits .......................... 243,171 95,568 154%
Number of employees ................... 571 124 360%
Total Assets (dollars in thousands) ... $633,825 $ 75,969 734%
======== ======== ========
- ----------
NM - Not meaningful
Results of Operations
- ---------------------
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Revenue
The Company's revenues increased to $8.4 million for the three months
ended June 30, 1996 from $3.5 million for the three months ended June 30, 1995,
an increase of 141%. Network capacity as reflected in VGEs in service increased
to 243,171 VGEs as of June 30, 1996 as compared with 95,568 VGEs as of June 30,
1995. These increases reflect the impact of the Company's acquisition and
development activities, including an increase in the number of networks in
operation to 18 from 11 in the second quarter of 1995, as well as increased
utilization of the Company's network facilities arising from the sales of
additional services to current and new customers. A significant contributor to
16
<PAGE>
the Company's revenue growth for the second quarter of 1996 relates to the
Company's entry into local exchange services in Grand Rapids, Michigan. Local
exchange services revenues for the quarter ended June 30, 1996, totaled
$1,424,000 as compared to $754,000 for the quarter ended March 31, 1996. The
increase in the Company's local exchange services revenues reflects the impact
of both rapidly growing revenues in Grand Rapids and a full quarter of local
exchange services for the quarter ended June 30, 1996, and two months of
operations for the quarter ended March 31, 1996. Grand Rapids' local exchange
revenues, based on annualized monthly revenues, increased from $4.7 million
based on March 1996 revenues to $6.4 million based on June 1996 revenues.
Costs and Expenses
Service costs increased to $3.6 million for the three months ended
June 30, 1996 from $1.8 million for the three months ended June 30, 1995.
Service costs consist of costs associated directly with the operation of the
Company's networks, facilities management services, and consulting and system
support activities for third parties including technical salaries and benefits,
local and long distance service costs, and rights-of-way fees. Service costs as
a percentage of telecommunications services revenues declined to approximately
43% for the three months ended June 30, 1996 as compared to approximately 50%
for the three months ended June 30, 1995.
The Company's selling, general and administrative expenses ("SG&A")
for the three months ended June 30, 1996 were $8.7 million, as compared with
SG&A expenses of $2.5 million for the three months ended June 30, 1995. The
increase was principally due to the increasing number and continued expansion of
17
<PAGE>
the Company's competitive access networks, including marketing activities
related to the introduction of switched services. There is typically a period of
higher SG&A expense and a lag time in the generation of revenues following the
acquisition and development of a competitive access network. Management expects
SG&A expenses to continue to increase during the remainder of 1996 as the
Company continues to expand its networks, services and marketing activities.
Depreciation and amortization expense increased to $3.2 million for
the three months ended June 30, 1996, from $1.0 million for the three months
ended June 30, 1995 as a result of the Company's acquisitions and the continued
expansion of the Company's networks.
Interest Income (Expense)
Interest expense totaling $7.8 million was recorded during the three
months ended June 30, 1996, as compared to interest expense of $895,000 for the
three months ended June 30, 1995. The primary contributor to the substantial
increase in interest expense as compared to the comparable period in the prior
year is non-cash interest expense totaling $6.6 million attributable to
accretion of the senior discount notes (see "Liquidity and Capital Resources")
issued by the Company on February 26, 1996. In addition, capitalized interest of
$537,000 was recorded for the quarter ended June 30, 1996, related to network
construction projects. For the quarters ended June 30, 1996 and 1995, interest
income totaling $4.5 million and $70,000, respectively, was derived from the
Company's available cash and cash equivalents and marketable securities.
18
<PAGE>
Net Loss
For the reasons stated above, the Company's net loss before minority
interest increased to $10.4 million for the quarter ended June 30, 1996, from
$2.6 million for the quarter ended June 30, 1995. Minority interests in net
losses, representing minority investors' interests in certain of the Company's
subsidiaries, totaled $615,000 and $176,000 for the quarters ended June 30, 1996
and 1995, respectively. As a result, the Company's net loss for the quarter
ended June 30, 1996 was $9.8 million as compared to a net loss of $2.5 million
for the quarter ended June 30, 1995.
EBITDA
Earnings before interest, taxes, depreciation and amortization
(EBITDA) decreased to ($3.9) million for the three months ended June 30, 1996,
from ($797,000) for the three months ended June 30, 1995, a decrease of $3.1
million. The decrease reflects the increasing operating and SG&A expenses noted
above resulting from the acquisition, development and expansion of the Company's
networks and the introduction of switched services in certain of the Company's
markets. EBITDA is a measure commonly used in the telecommunications industry
and is presented to assist in an understanding of the Company's operating
results and is not intended to represent cash flow or results of operations in
accordance with generally accepted accounting principles.
19
<PAGE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenue
The Company's revenues increased to $15.2 million for the six months
ended June 30, 1996 from $6.5 million for the six months ended June 30, 1995, an
increase of 134%. These increases reflect the impact of the Company's
acquisition and development activities as well as increased utilization of the
Company's network facilities arising from the sales of additional services to
current and new customers. A significant contributor to the Company's revenue
growth for the six months ended June 30, 1996 relates to the Company's entry
into local exchange services in Grand Rapids, Michigan as a result of the
Company's City Signal acquisition. Local exchange services revenues for the six
months ended June 30, 1996, totaled $2.2 million.
Costs and Expenses
Service costs increased to $6.5 million for the six months ended June
30, 1996 from $3.4 million for the six months ended June 30, 1995. Service costs
as a percentage of telecommunications services revenues declined to
approximately 43% for the six months ended June 30, 1996 as compared to
approximately 52% for the six months ended June 30, 1995.
The Company's SG&A expenses for the six months ended June 30, 1996
were $15.3 million, as compared with SG&A expenses of $4.8 million for the six
months ended June 30, 1995. The increase was principally due to the increasing
number and continued expansion of the Company's competitive access networks,
including marketing activities related to the introduction of switched services.
20
<PAGE>
Depreciation and amortization expense increased to $5.6 million for
the six months ended June 30, 1996, from $1.8 million for the six months ended
June 30, 1995 as a result of the Company's acquisitions and the continued
expansion of the Company's networks.
Interest Income (Expense)
Interest expense totaling $11.6 million was recorded during the six
months ended June 30, 1996, as compared to interest expense of $1.7 million for
the six months ended June 30, 1995. The primary contributor to the substantial
increase in interest expense as compared to the comparable period in the prior
year is non-cash interest expense totaling $9.3 million attributable to
accretion of the Company's senior discount notes. In addition,
capitalized interest of $546,000 was recorded for the six months ended June 30,
1996. For the six months ended June 30, 1996 and 1995, interest income totaling
$6.3 million and $177,000, respectively, was derived from the Company's
available cash and cash equivalents and marketable securities.
Net Loss
For the reasons stated above, the Company's net loss before minority
interest increased to $17.5 million for the six months ended June 30, 1996, from
$5.0 million for the six months ended June 30, 1995. Minority interests in net
losses, representing minority investors' interests in certain of the Company's
subsidiaries, totaled $1.1 million and $318,000 for the six months ended
June 30, 1996 and 1995, respectively. As a result, the Company's net loss for
21
<PAGE>
the six months ended June 30, 1996 was $16.4 million as compared to a net loss
of $4.7 million for the six months ended June 30, 1995.
EBITDA
EBITDA decreased to ($6.6) million for the six months ended June 30,
1996, from ($1.7) million for the six months ended June 30, 1995, a decrease of
$4.9 million. The decrease reflects the increasing operating and SG&A expenses
noted above resulting from the acquisition, development and expansion of the
Company's networks and the introduction of switched services in certain of the
Company's markets.
Liquidity and Capital Resources
- -------------------------------
The Company's total assets increased from $146.6 million as of
December 31, 1995 to $633.8 million at June 30, 1996. The Company's current
assets of $418.6 million at June 30, 1996, including cash and cash equivalents
and marketable securities of $406.4 million, exceeded current liabilities of
$15.7 million, providing working capital of $402.9 million. Network and
equipment totaled $142.9 million at June 30, 1996 as compared to $50.0 million
at December 31, 1995. Other assets, principally goodwill, net of accumulated
amortization, increased to $67.3 million at June 30, 1996 from $33.5 million at
December 31, 1995, primarily as a result of the Company's acquisitions of both
City Signal, Inc. and BTC, and debt issuance costs associated with the Company's
recent $250 million gross proceeds senior discount note offering.
22
<PAGE>
In connection with the City Signal acquisition, the seller received
an option to require the Company to repurchase any or all of the 2,240,000
shares of the Company's common stock issued in the City Signal acquisition at a
price of $12.50 per share on or before February 1, 1998. In conjunction with the
Company's initial public offering (IPO) (see below), the holder of such shares
sold ten percent (10%) of such shares. Accordingly, shares subject to redemption
total 2,016,000 shares.
On February 26, 1996, the Company sold $425.0 million aggregate
principal amount of 10 7/8% Senior Discount Notes, providing gross proceeds of
approximately $250 million, and proceeds net of underwriting fees of
approximately $241 million. No cash payments of interest are required on the
Senior Discount Notes until September 1, 2001.
On May 2, 1996, the Company sold 7,385,331 shares of the Company's
common stock in its IPO at a price of $27.00 per share. Gross proceeds from this
offering totaled approximately $199.4 million and proceeds net of underwriting
discounts and advisory fees and expenses totaled approximately $185.2 million.
In June 1996, the Company and MCImetro Access Transmission Services,
Inc. ("MCImetro") entered into an agreement pursuant to which MCImetro has
acquired a minority interest in the Company's Sacramento, California network and
has made an additional investment in the San Jose joint venture company. In
connection with these agreements, MCImetro has made additional cash investments
totaling $8.0 million. The agreement gives MCImetro the option (i) to exchange
the agreed value of its September 1995 investment in the San Jose network for
shares of the Company's common stock based on the September 1995 price of $8.25
23
<PAGE>
per share if exchanged prior to October 24, 1996, or based on a price of $15.50
per share if exchanged thereafter but on or prior to April 24, 1997, and (ii) to
exchange the agreed value of its June 1996 investments in both networks for
shares of the Company's common stock based on a price of $30.00 per share if
exchanged prior to October 24, 1996, or based on a price of $40.00 per share if
exchanged thereafter but on or prior to April 24, 1997.
In June 1996, the Company formed a strategic alliance with World-Net
Access, Inc. ("World-Net"), through a $5 million investment in exchange for a
20% fully-diluted interest. World-Net is a privately-held development stage
company founded to form a national Internet Service Provider network. The
Company intends for both companies to seek ways to work together and provide
customer-oriented internet and intranet communications solutions.
The competitive local telecommunications services business is a
capital-intensive business. The Company's operations have required and will
continue to require substantial capital investment for (i) the installation of
electronics for switched services in the Company's operating networks; (ii) the
expansion and improvement of the Company's operating systems, including the
installation of capabilities to provide other enhanced services; and (iii) the
acquisition, design, construction and development of additional networks. For
the six months ended June 30, 1996 and 1995, the Company made expenditures for
the acquisition, design, construction and development of systems totaling $63.2
million and $8.4 million, respectively.
The Company plans to continue to make substantial capital investments
in connection with the entry into new markets and the continued development of
its existing systems, including the capital required to provide switched and
24
<PAGE>
other enhanced services as technology and regulations permit. The Company
currently intends to use the net proceeds from the Company's recent equity
offering, together with the remaining net proceeds from its 10 7/8% senior
discount note offering and minority investments in individual networks, to fund
the Company's expansion as well as initial operating losses. The Company
currently estimates that it will spend approximately $290 million during 1996
and 1997 to fund the Company's expansion to 30 networks that are expected to be
in operation or under construction by the end of 1996, and to fund the
installation of switching electronics and other enhanced capabilities in these
networks. The Company's strategic plan calls for having systems in operation or
under development in a total of 50 cities by the end of 1998, which will require
substantial additional capital. The Company expects its expansion into
additional cities will be accomplished by the acquisition of existing networks
as well as the construction of new networks. The Company will continue to
evaluate additional revenue opportunities in its existing markets and, as such
opportunities may develop, the Company may determine to make additional capital
investments in its networks that may be required to pursue such opportunities,
such as costs required to extend a network or install additional electronics to
meet customer requirements. Due to the number and variability of the factors
which could affect the amount of capital that will be required for such
purposes, the Company cannot provide a reasonable estimate of such additional
capital needs. For example, the size of a particular network to be developed or
acquired and the types of electronics installed can impact significantly the
amount of capital required. Similarly, the potential cost of acquiring
additional networks is not determinable, and it is possible that the Company
could acquire existing networks using a variety of financing alternatives. The
Company expects to meet such additional capital needs with the proceeds from its
recent equity offering, the proceeds from existing and future credit facilities
25
<PAGE>
and other borrowings, and the proceeds from sales of additional equity
securities and joint ventures. The Company's expectations of required future
capital expenditures are based on the Company's current estimates and the
current state and federal regulatory environment. There can be no assurance that
actual expenditures will not be significantly higher or lower. In addition,
there can be no assurance that the Company will be able to raise or generate
sufficient funds to enable it to meet its strategic objectives or that such
funds, if available at all, will be available on a timely basis or on terms that
are acceptable to the Company.
Information Regarding Forward-Looking Statements
- ------------------------------------------------
The statements contained in this report which are not historical
facts are forward-looking statements that involve risks and uncertainties.
Management wishes to caution the reader that these forward-looking statements,
such as the Company's plans to have systems in operation or under construction
in a total of 30 cities by the end of 1996 and 50 cities by the end of 1998 and
its expectations for the installation of switches serving 25 of its markets by
the end of 1996, are only predictions; actual events or results may differ
materially as a result of risks facing the Company. Such risks include, but are
not limited to, the Company's ability to successfully market its services to
current and new customers, access markets, identify, finance and complete
suitable acquisitions, design fiber optic backbone routes, install cable and
facilities, including switching, and obtain rights-of-way, building access
rights and any required governmental authorizations, franchises and permits, all
in a timely manner, at reasonable costs and on satisfactory terms and
conditions, as well as favorable regulatory, legislative and judicial
developments.
26
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit No. Sequential
(Reference to Item 601(b) Page
of Regulation S-K) Description Number
------------------------- ------------------------------------ ----------
11 Statement regarding Computation 30
of Per Share Earnings
27 Financial Data Schedule 31
(furnished to the Securities and
Exchange Commission for
Electronic Data Gathering,
Analysis, and Retrieval
[EDGAR] purposes only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for which this report
is filed.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKS FIBER PROPERTIES, INC.
(Registrant)
Date: August 9, 1996 By /s/ James C. Allen
-------------------------------------
James C. Allen
(Chief Executive Officer)
Date: August 9, 1996 By /s/ David L. Solomon
-------------------------------------
David L. Solomon
(Principal Financial Officer)
28
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------- ---------------------------------------------------------- -----------
11 Computation of Earnings Per Share 30
27 Financial Data Schedule 31
(furnished to the Securities and Exchange Commission for
Electronic Data Gathering, Analysis, and Retrieval {EDGAR}
purposes only)
29
EXHIBIT 11
BROOKS FIBER PROPERTIES, INC.
Statement Regarding Computation of Earnings Per Share
Six Months Ended June 30, 1996
Shares outstanding - January 1, 1996 ............................. 1,162,800
Weighted average number of common and common equivalent shares
issued (1) ................................................... 20,760,533
------------
Weighted average number of common and common equivalent shares
outstanding - June 30, 1996 .................................. 21,923,333
============
Net loss ......................................................... $(16,396,000)
============
Pro forma loss per common and common equivalent shares ........... $(0.75)
============
(1) Common and common equivalent shares issued consist of certain effects of
shares issued, stock options, warrants, and preferred stock. Common
equivalent shares from convertible preferred stock (using the if converted
method) and stock options and warrants (using the treasury stock method)
have been included in the computation. Pursuant to the Securities and
Exchange Commission rules, convertible preferred stock which were
automatically converted at the date of the Company's IPO is included even
though inclusion may be antidilutive. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletin No. 83, shares issued, and
stock options and warrants granted by the Company at prices below the
initial public offering price during the twelve-month period preceding the
date of the initial filing of the Registration Statement have been
included in the calculation of common stock equivalent shares, using the
treasury stock method, as if they were outstanding for the six months ended
June 30, 1996.
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR BROOKS FIBER PROPERTIES, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000915509
<NAME> BROOKS FIBER PROPERTIES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 256,224,000
<SECURITIES> 150,178,000
<RECEIVABLES> 5,198,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 418,597,000
<PP&E> 150,401,000
<DEPRECIATION> 7,503,000
<TOTAL-ASSETS> 633,825,000
<CURRENT-LIABILITIES> 15,677,000
<BONDS> 306,391,000
25,200,000
0
<COMMON> 263,000
<OTHER-SE> 249,872,000
<TOTAL-LIABILITY-AND-EQUITY> 633,825,000
<SALES> 15,204,000
<TOTAL-REVENUES> 15,204,000
<CGS> 0
<TOTAL-COSTS> 27,399,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,339,000
<INCOME-PRETAX> (16,396,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,396,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,396,000)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
